Offering smokers new alternatives has been a stepping stone for huge growth in the OTP segment. The category as a whole has been showing big numbers, but MST, in particular, has been leading a bold charge in the c-store industry.
Retailers are eager to capitalize on the profits OTP offers. Of the 77 key decision makers to participate in the CSD Brand Preference Study, 65% reported they were working closely with OTP suppliers and communicated with three or more companies in the past 60 days. However, 10% reported no sales presentation in the past two months.
Communication is crucial especially as the stakes get higher. A USB study on smokeless products showed that MST alone enjoyed a sales boost of 8%, reaching a peak of unforeseen sales that have continued to rise since 2004.
Experts, such as Nik Modi, analyst for USB Investment Research, forecast that the smokeless tobacco category will continue to hold that volume until the end of the decade.
"MST growth is still in its early phase," said Nik Modi, analyst for USB Investment Research. "It’s expected to show an increase of 6 to 8% continuing up until 2010. With the volume growth we’re seeing each year, bigger players and manufacturers are going to be getting involved and we may see that number change even more."
Driven by category leader U.S. Smokeless Tobacco (USST), MST products experienced the fastest growth rate among packaged consumer products. Modi attributes this growth to an increase in marketing, especially in c-stores, which are using the product as a means to offset slouching sales in other categories.
"We estimate that 70% of the MST category is sold through the c-store channel," said Modi. "C-store retailers are recognizing the growth potential of OTP, particularly MST, and the attractive margins it can offer."
A lot of this growth comes as cigarette sales have been flat, putting fear into the hearts of retailers worried about losing gross profit margins on what used to be the number one in-store source for sales. Because of these numbers, retailers, aided by eager suppliers like USST, have been reducing cigarette space on the counter and back bar to make room for MST and other smokeless products.
Like MST, cigars, particularly flavored cigars, have also been a huge boost to OTP. Retailers said one key to growing flavored cigar sales is letting customers know what options are available. Joe Hamza, director of marketing for Tedeschi Food Shop’s Store 24 chain, has been enjoying success with flavored cigars not only because of the demand, but because of the aggressive placement of the products in the stores.
Retailer respondents recognized a number of suppliers, including Swisher, Conwood, Swedish Match, John Middleton and Altadis as having outstanding products, promotions and marketing support.
One other trend worth watching is snus. In particular, Philip Morris and R.J. Reynolds are both capitalizing on consumers’ desires for a clean, spit-free form of smokeless tobacco. Snus is a popular European concept that comes in the form of a tea bag-like pouch of tobacco that’s pinched like snuff. Philip Morris in particular has coupled this concept with the Marlboro name, offering Marlboro Snus in test markets, and Reynolds is offering Camel Snus. On paper, this new smokeless tobacco has limitless possibilities thanks to the boost it will get from the reputations of tobacco titans like Philip Morris and R.J. Reynolds, not to mention the marketing resources.